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An employee could no longer manage the physical parts of his job, so his employer moved him into a lesser role. That decision produced a constructive dismissal finding, 22 months of notice, and a costs award against the employer at trial and on appeal. The defence the employer ran, frustration of the employment contract, is available in principle and failed here for reasons that are entirely avoidable.
Updated August 2026
This article sets out what Hill v. 1359768 Ontario Inc. (B&B Towing) requires of an employer asserting frustration, why the argument failed, the one ground on which the employer succeeded and saved $125,640, and what to do differently before reorganising around an employee’s capacity.
Here the role was managerial. Driving and towing were expressly a lesser part of it. So the employer had to show he could not perform the managerial core, which it could not do.
The employer did win on quantum. The employee failed to prove that his company tow truck and cellphone were employment benefits rather than business tools, and $125,640 came off the award. That is the practical lesson worth acting on.
Considering a role change because an employee can no longer perform part of their job?
A demotion in that situation is a constructive dismissal unless frustration is genuinely established, and establishing it requires evidence assembled before the decision rather than after the claim. This is the point at which advice is cheapest.
Book an Introductory Call
Or call: 1-800-771-7882
What happened
The employee worked for a towing services company as a road boss, a managerial position. His duties involved managing between 15 and 27 tow truck drivers, arranging the ordering of parts and vehicle maintenance, repairing vehicles, addressing damage complaints, hiring and terminating employees, collecting documents and collections from drivers, and a range of clerical, scheduling, and administrative responsibilities. To a lesser extent the role also involved driving tow trucks, short and long towing, winching, customer interfacing, lock-out services, boosting, and flat tire services.
The employer moved him from road boss to tow truck driver. The trial judge found that demotion was a constructive dismissal, rejected the employer’s argument that the contract had been frustrated by his inability to perform the road boss duties, and awarded damages over a 22-month notice period. Those damages included the pecuniary value of the loss of use of a company tow truck and cellphone assigned to him during his employment.
On appeal the employer did not dispute that, absent frustration, the demotion was a constructive dismissal. Nor did it dispute the 22-month notice period. It argued the trial judge erred on frustration, and separately on the vehicle and cellphone damages.
Why the frustration argument failed
Frustration of an employment contract by reason of an employee’s incapacity is a real doctrine and it does succeed in appropriate cases. Three features of how it was run here explain why it did not.
The onus sits with the employer
The Court of Appeal put it plainly: the trial judge simply did not accept that the employer had met its onus to prove the contract was frustrated because of the employee’s incapacity. Frustration is not a characterisation the employer applies. It is a case the employer has to build.
The test is about essential duties
The question is whether there was no reasonable likelihood the employee could discharge the essential duties of the position within a reasonable time. Duties that form a lesser part of the role are not the measure.
Accommodation is part of the analysis
The employer also challenged the assessment of whether it could reasonably have accommodated him, given his physical limitations and its financial constraints. That challenge formed part of the frustration ground and did not succeed.
Reasons are read contextually
The employer’s argument was in substance that the trial judge’s reasons were insufficient. Reasons are read in light of the whole record and the parties’ submissions, and concise reasons are not inadequate ones.
The essential duties problem, and how to avoid it
This is the part worth acting on, because it is a documentation problem rather than a legal one.
The trial judge did not set out a list of the road boss position’s essential duties, and the employer argued that was an analytical error. The Court held it was not, because there was little controversy about what those duties were. The employee gave evidence on the point and the employer’s own principal agreed it was largely accurate.
That evidence described a substantially managerial role, with the driving and physical work as a lesser component. Once the essential duties were understood that way, an employee with physical limitations was not thereby incapable of performing them, and the frustration argument had nothing left to stand on.
Two consequences follow for any employer contemplating this argument. If you have not defined the essential duties of the role in advance, they will be defined for you, from the employee’s evidence and whatever your managers concede. And a role that is mostly managerial cannot be treated as frustrated because its physical elements have become difficult, however genuinely inconvenient that is operationally.
Accurate, current job descriptions distinguishing essential from incidental duties are the control here. See our services on workplace policies and documentation and our article on why workplace policies matter.
Do your job descriptions distinguish essential duties from incidental ones?
If not, that distinction gets drawn during litigation on the employee’s evidence. It is a straightforward document to prepare in advance and very difficult to reconstruct afterwards.
Book an Introductory Call
Or call: 1-800-771-7882
Where the employer won: $125,640 on the vehicle and phone
The employer succeeded on one ground, and it is the most immediately useful part of the decision.
The trial judge had included in the damages the pecuniary value of losing the use of a company tow truck and a cellphone across the 22-month notice period. The Court of Appeal removed that, reducing the award by $125,640.
The reasoning turns on onus and characterisation. The employee bears the onus of proving the loss of an employment benefit, and on the cellphone he had not met it. The Court distinguished an earlier case in which a cellphone allowance was compensable, where the employer had argued the payments were merely reimbursement for business expenses not being incurred during the notice period, and that argument failed because the trial judge had found the employee personally benefited from the cellphone’s use.
So the distinction is between a genuine employment benefit and a business tool.
| Likely compensable in notice damages | Likely not |
|---|---|
| A vehicle allowance the employee could spend as they chose | A vehicle supplied and documented as required equipment for the role |
| A phone or car available for personal use as part of the package | Reimbursement of business expenses that stop being incurred once employment ends |
| Anything the employee can show they personally benefited from | Anything the employee cannot prove was a benefit rather than a tool |
The practical implication is a structuring one. How you provide and document vehicles, phones, and equipment affects what they cost you in a notice award, and the difference here was $125,640 on a single claim. See what forms part of a common-law severance calculation.
What the case cost
| Item | Outcome |
|---|---|
| Notice period | 22 months, upheld and not contested on appeal |
| Vehicle and cellphone | $125,640 removed on appeal |
| Appeal costs | $10,000 payable by the employer to the employee |
| Trial costs | $50,000 in fees plus HST to the employee, undisturbed. Disbursements reduced from $25,000 to $3,431.29 |
Note what a partial success on quantum did and did not achieve. The employer removed a substantial figure from the award and still paid the employee’s costs at both levels, because it lost on liability. A damages argument does not repair a lost constructive dismissal case, which is why the decision that matters is the one taken before the role change rather than the one taken in the pleadings.
Six steps before asserting frustration
- Define the essential duties in writing, first. Separate what the role fundamentally requires from what is incidental to it. Do this from the job description and the operational reality, before any capacity question arises.
- Obtain proper medical evidence on capacity and prognosis. Frustration requires no reasonable likelihood of the employee performing the essential duties within a reasonable time. That is a medical question and it needs medical evidence, not managerial impression.
- Run and document the accommodation analysis. Identify the options considered, what was tried, and why alternatives were rejected. An undue hardship position asserted on financial grounds needs financial evidence behind it.
- Do not demote as a workaround. Moving an employee to a lesser role because they cannot perform part of their current one is a constructive dismissal unless frustration is genuinely established. It is the step that created the liability here.
- Consider whether the relationship is ending or pausing. Statutory leave and accommodation obligations may run considerably longer than an operational plan assumes. See long-term illness leave in Ontario, which provides up to 27 unpaid weeks, after which the duty to accommodate continues.
- Take advice before the decision, not after the claim. Frustration is available and it does succeed. What it requires is a record built in advance, and that record cannot be created retrospectively.
An audit worth running now
Work through these against your own records
- Do your job descriptions exist, are they current, and do they distinguish essential duties from incidental ones?
- For managerial roles, is it clear that the managerial functions are the essential ones and any physical work is not?
- Where an employee’s capacity is in question, do you hold medical evidence addressing prognosis and the timeframe for return, rather than fitness in general terms?
- Is your accommodation process documented, including the options considered and the reasons any were rejected?
- If you would assert undue hardship on financial grounds, could you evidence it?
- Are company vehicles, phones, and equipment documented as business tools, with any personal use dealt with expressly?
- Do your managers understand that a role change in response to a capacity problem is a legal decision rather than an operational one?
- Have your supervisors been trained on what to do when an employee reports a limitation? See our workplace training.
Frequently asked questions
Can an employer rely on frustration of contract when an employee cannot perform their job?
Yes in principle, but the employer bears the onus of proving it. In Hill v. B&B Towing the Court of Appeal upheld the trial judge’s finding that the employer had not met that onus. The question is whether there is no reasonable likelihood the employee could discharge the essential duties of the position within a reasonable time, and it requires medical evidence and a documented accommodation analysis rather than an operational judgment.
Why did the frustration argument fail in this case?
Because the essential duties of the role were managerial. The position involved managing between 15 and 27 drivers along with maintenance, hiring, scheduling, and administration, with driving and towing described as a lesser part of the job. An employee with physical limitations was therefore not incapable of performing the essential duties, so there was nothing for the frustration argument to rest on.
Is demoting an employee who cannot perform part of their role a constructive dismissal?
Generally yes, unless frustration of the contract is established. Here the employer moved the employee from a managerial road boss position to tow truck driver, and the trial judge found that was a constructive dismissal. On appeal the employer did not dispute that finding, arguing only that the contract had been frustrated.
Does an employer have to define essential duties in advance?
There is no standalone requirement to do so, but in practice it decides these cases. The trial judge did not list the essential duties and the Court of Appeal held that was not an error, because there was little controversy about them: the employee gave evidence on the point and the employer’s principal agreed it was largely accurate. Where an employer has not documented the distinction, it will be established from the employee’s evidence.
Are company vehicles and cellphones included in notice damages in Ontario?
Not automatically. The employee bears the onus of proving the loss of an employment benefit. In this case the Court of Appeal removed $125,640 from the award, representing amounts related to a company tow truck and cellphone, because that onus had not been met. Where an item is a business tool rather than something the employee personally benefits from, it may not be compensable.
How can employers limit exposure on company vehicles and phones?
By making the characterisation clear at the outset. An item provided and documented as required equipment for the role, with personal use addressed expressly, is in a different position from an allowance the employee can spend as they choose or an item they plainly benefit from personally. That distinction was worth $125,640 in this case.
Was 22 months of notice unusual here?
It is at the higher end of the Ontario range, and notably the employer did not challenge it on appeal. Notice is assessed on the employee’s age, length of service, the character of the position, and the availability of comparable work, so a long-service employee in a managerial role can attract a period of that length.
Does winning on damages help if the employer loses on liability?
Only partially. The employer removed $125,640 from the award and still paid the employee $10,000 in appeal costs, with the trial costs award of $50,000 in fees plus HST left undisturbed. A quantum argument reduces the figure but does not address the finding that a constructive dismissal occurred.
How Achkar Law helps employers
Achkar Law acts for management across Ontario on capacity and accommodation decisions, including whether frustration of contract is realistically available, what medical evidence is needed to support it, and how to document an accommodation analysis that will withstand scrutiny. Where a role change is being contemplated in response to a capacity issue, that is the point at which the decision can still be shaped.
See our services on terminations and layoffs, labour and employment compliance, employment agreements, and employment litigation.
Facing a capacity issue you cannot accommodate operationally?
Frustration of contract is available and it does succeed, but only where the essential duties are defined, the medical evidence supports it, and the accommodation analysis has been done and documented. All three have to exist before the decision is taken.
Or call us at 1-800-771-7882, or fill out the form below and a member of our team will be in touch.
This article summarises a court decision and provides general information about Ontario employment law for employers. It is not legal advice. Hill v. 1359768 Ontario Inc. (B&B Towing), 2026 ONCA 577 was released on 10 August 2026 and may be subject to a further application for leave to appeal. Whether frustration is available, and what forms part of notice damages, depend closely on the facts and the documentation. An employment lawyer can advise on your organization’s circumstances.
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The post Hill v. B&B Towing: Frustration and Notice Damages appeared first on Achkar Law.